Today, we’re very happy to present the fifth episode of “Cost of Production and Profitability for Coffee Producers,” a session recorded at Re:co Symposium this past April. Buyers and producers alike need to understand what it takes to produce specialty coffee so that it can be produced sustainably, so we convened experts to ask: Do we really know what specialty coffee costs?

If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode.

In today’s episode, speaker David Browning looks into some of the important empirical underpinnings of the coffee industry: How many coffee farms are there? How many of the world’s farmers are smallholders? How valuable is the coffee industry? Sharing results from robust statistical research conducted by Enveritas across 20 countries, David looks anew at coffee industry facts as we know them.

Special Thanks to Toddy

This talk from Re:co Boston is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates, that are ready to serve and enjoy. Learn more about Toddy at http://www.toddycafe.com.

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Table of Contents

0:00 Introduction2:30 There is no reputable study that has counted the number of coffee farms in the world5:15 David’s details his research methodology for getting an accurate number9:30 The results of David’s study, revealing there are likely 12.5 million coffee farms, of which two-thirds are smallholders.11:00 Why it’s important to have accurate data to resolve issues in the coffee world.18:50 It’s important to challenge coffee’s status quo because history will probably judge you harshly for working in an industry that causes suffering23:45 Outro

Full Episode Transcript

0:00 Introduction

Peter Giuliano: Hello everybody, I’m Peter Giuliano, SCA’s Chief Research Officer. You’re listening to an episode of the Re:co Podcast, a series of the SCA Podcast. The Re:co podcast is dedicated to new thinking, discussion, and leadership in Specialty Coffee, featuring talks, discussions, and interviews from Re:co Symposium, the SCA’s premier event dedicated to amplifying the voices of those who are driving specialty coffee forward. Check out the show notes for links to our YouTube channel where you can find videos of these talks.

This episode of the Re:co Podcast is supported by Toddy. For over 50 years, Toddy brand cold brew systems have delighted baristas, food critics, and regular folks alike. By extracting all the natural and delicious flavors of coffee and tea, Toddy Cold Brew Systems turn your favorite coffee beans and tea leaves into fresh cold brew concentrates that are ready to serve and enjoy. Learn more about Toddy at toddycafe.com. Toddy: Cold brewed, simply better.

Re:co Symposium and the Specialty Coffee Expo are coming to Portland in April 2020. Don’t miss the forthcoming early-bird ticket release – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements.

Today, we’re very happy to present the fifth episode of “Cost of Production and Profitability for Coffee Producers,” a session recorded at Re:co Symposium this past April. Buyers and producers alike need to understand what it takes to produce specialty coffee so that it can be produced sustainably, so we convened experts to ask: Do we really know what specialty coffee costs?

If you haven’t listened to the previous episodes in this series, we strongly recommend going back to listen before you continue with this episode.

So today’s episode, we have speaker David Browning looking into some of the important empirical underpinnings of the coffee industry. Which are: how many coffee farms are there? How many of the world’s farmers are smallholders? How valuable is the coffee industry? Etc I really love David’s approach here. He took a myth-busting, analytic and very self-critical approach to this important question.

Sharing results from robust statistical research conducted by Enveritas across 20 countries, David looks at all these industry facts as we know them.

Also, to help you follow along in this podcast, I will chime in occasionally to help you visualize the slides that you can’t see.

2:30 There is no reputable study that has counted the number of coffee farms in the world

David Browning: Good afternoon. What do we know and what can we do? Well, there are some things we know to be true. We know there are 25,000,000 coffee farms in the world, that 80% of the coffee is produced by smallholders, that we only use 10% of our brain capacity, and that coffee is the second most valuable commodity in the world after oil and that there are no silver bullets. These things we know. We know it because if I Google how many coffee farms are there, I get the answer – 25 million, backed up presumably by 244 million other results – and this number is confirmed by many reputable sources. The New York Times, ICO, PBS. SCA’s magazine is named in honor of the estimated 25 million coffee producing families around the world. It’s all footnoted, but whose estimate is this? And if I click the footnotes what do I find? If I click that footnote and I trace it back to the original source, what I find is a handful of papers written around 2001 with numbers but no source. A single paper in 1999 with no source and a singular blog post from 1995 offering 20 million with no source and then the trail runs cold.

So, to the best of our knowledge, there is no footnote. There is no source of this data, no methodology. Possibly in the early 1990s, the Association of Coffee Producing Countries asked members to submit an estimate, but if they did, those numbers have been lost and even if we had the data, we don’t know how many countries submitted or whether they used a consistent methodology. So, we thought it would be helpful for the industry to have a robust, credible estimate for researchers and practitioners to work from. So, we interviewed 20,000 coffee farm households, analyzed 20 countries, consulted over 80 institutions, and then applied statistical models to develop a global estimate and this effort took over a year to complete.

I’d like to thank the Enveritas team and the many institutions that contributed. We could not have completed this work without your help.

5:15 David’s details his research methodology for getting an accurate number

David Browning: Our result is not a perfect number, but we did what we could with the time resources available to us, and we believe it’s a credible estimate. There’s an improvement on the existing number, but more importantly, it provides a methodology that others can challenge and build on and improve over time. We provide an estimate of farms, not farmers. Why is that? But with a widowed farmer, there is no ambiguity. One farm, one farmer. Also easy is a farm where both the husband and wife work on the farm. One farm, two farmers. But what about a situation where a husband-wife both live on the farm, but the wife farms the coffee and the husband lives on the farm but runs a bakery in town? Is he a farmer and what about her father who no longer works on the farm but does oversee the coffee drying during harvest and his son, who works as a taxi driver in town but comes back and lives on the farm during the harvest and does the all-important harvest? Is he a coffee farmer on this farm? You can see the complexity. So, to reduce ambiguity we measured farms, not farmers for this exercise.

We excluded coffee farmers that produce coffee only for their own consumption where it would distort the data. That is because when this claim is often framed and used, it’s used within the context of global trade, how many people rely upon coffee? And so we excluded farms which might have five to ten trees, pick and roast that coffee for their own consumptions. We didn’t cover every coffee origin the world, but we did cover most of the origins. We analyzed coffee origins that account for over 80% of the world’s coffee farms and over 90% of global production. We analyzed 20 countries seen here in blue of the 58 main coffee origins. Some of these countries here we conducted using a range of secondary research, but in most cases, we went onto the ground to talk to farmers.

David Browning: So, how do we estimate the number of farms? To do that we need to do two things, estimate the total production volume and then divide that by average production per farm. Total production volume we estimate by triangulating official production statistics, export volumes data and estimates from experts and institutions that could tell us whether information needed to be adjusted. For the average production per farm we need to estimate yield per hectare and farm size. But for much of the coffee world, farmers do not think in terms of farm size that yield per hectare. They may think instead, in terms of tree density and yield per tree. This is particularly true for very small farms, but also in parts of the coffee world where tree density is not uniform. We’ve visited farms where coffee trees were planted around the perimeter of the farm with no coffee in the middle. So how do we derive these parameters? Bear with me. We need to take a sample data through a series of steps. We gather data from five interviews and plot the histogram of sample data. We use the Cullen and Frey graph which measures skewness and kurtosis to decide on a population distribution, confirm the appropriateness of that distribution curve, log normal in our case by matching against theoretical distributions. Conduct tests such as the Kolmogorov–Smirnov Test and the Akaike’s and Bayesian Information Criterion, then estimate the parameters of distribution and plot the distribution and estimate population average per country. Well, that’s the short version of how it was done. I’ll spare you the details.

Peter Giuliano: David’s slide is crammed full of graphs, equations, and statistical jargon.

9:30 The results of David’s study, revealing there are likely 12.5 million coffee farms, of which 2/3 are smallholders.

David Browning: In terms of the breakdown, the three countries represent nearly half of all the world’s coffee farms – Ethiopia, Uganda, and Indonesia with over 5,000,000 farms – and country totals add up to a total estimate of 12.5 million coffee farms, half the number commonly cited. You might be tempted to think well. This 12.5 is the farms and 25 million is the farmers except back in 1990 very few institutions would have been counting spouses in a definition of coffee farms. So, that’s unlikely and the 25 million number is routinely multiplied by five to get to 125 million, a number you’ve probably heard to estimate all family members. So, there are some things we know to be true, such as 80% of coffee is produced by smallholders. This is factually accurate if we take our estimates and use each country’s definition of smallholder. But we should be aware that in Brazil farms up to 50 hectares are considered smallholder and at 1500 kilos per hectare such a farm could generate gross revenues of well over US$100,000 per year, and we’d be classifying them as a smallholder. So, using a more conservative, globally standardized definition of up to 20 hectares for smallholder coffee farming, smallholders produce approximately two-thirds of the world’s coffees.

11:00 Why it’s important to have accurate data to resolve issues in the coffee world.

David Browning: But there are some things that we know to be true. We only use 10% of our brain, a comment often attributed to Albert Einstein. No evidence of that. It shows up in self help books in the 1920s and 30s including, most famously, the introduction to Dale Carnegie’s seminal book “How to Win Friends and Influence People,” written in 1936. This introduction attributed to claim for professor here in Boston, Professor William James around 1901.

Peter Giuliano: David’s showing a picture of an old fashioned room with floral wallpaper and heavy wooden cabinets. In the middle, three people are performing surgery on a patient.

David Browning: This is a surgery room in 1901. What you’ll note is the absence of a functional magnetic resonance imaging machine, functional MRI that might detect changes in blood oxygenation or neurological measuring equipment of any kind that might help you quantify brain usage to the 10% level versus a 13.5% level because this equipment hasn’t been invented yet. I could talk a lot more on this one, but no, let’s move on.

We do know some things are true. Coffee is the second most valuable commodity after oil. Any thoughts? Who thinks this is a fact versus some obscure unsubstantiated claim? Wall Street Journal says it’s a fact. It is a fact. It does have an original source, a well-researched book called “The World’s Coffee” written in 1963 by J. W. F. Rowe, page 19. The original assertion refers to export values. Nothing to do with futures values, which is one of the surmises that in people in the industry often have about this claim. The data sources are patchy from 60 years ago, but doing some quick estimates it looks like coffee export value may have actually exceeded oil around 1950 but in 1963 lower down on the same page, Rowe adds this fact is no longer true. Wheat overtook coffee in about 1960. He created the sound bite and then tells us it’s no longer true on the same page. But then we let half a century go by. It did become true briefly following the big Frost scare in Brazil in the seventies and again with Brazil drought in the eighties. Rowe was using the soundbite to make a point but we shouldn’t keep using it. It’s both inaccurate and irrelevant. Inaccurate because it’s no longer truth and irrelevant because it doesn’t give meaningful insight. It will vary greatly depending on short term price swings and since the definition is exports, excluding domestic consumption, it’s increasingly irrelevant for comparing commodities like oil and coffee.

What we can say truthfully today is that coffee is one of several agricultural commodities that are widely traded, but then that wouldn’t have quite the same ring to it on Twitter.

Peter Giuliano: David is showing a graph entitled “A bowl of spaghetti.” It shows the value of global exports over time for a range of commodities. Oil is by far the most valuable. And below the oil line is a tangle of commodities that are all roughly the same in value, fluctuating in value year on year. In 2015, the next most traded commodities after oil – by export value – are soybeans, wheat, maize, wine, soybean meal, palm oil, rice, coffee, cotton lint, and wool.

David Browning: What do we care of things of fact or fiction? Well, it doesn’t matter if you don’t plan to do anything about it, but if you plan to work on the issues, if you’re interested in engaging on problem-solving, it would be far better that we understand what the issues are, what the priorities are and get to the insight and understanding below the headline. Otherwise, we could spend a lot of time talking and a lot of time working on solutions to problems that aren’t even the most pressing priorities. But there are some things we know to be true.

There are no silver bullets. I would put it to you that there are silver bullets. We’re surrounded by them. We don’t see them because we get used to them so fast but we should spend more time looking for them and exercise the habit of trying to see them and nurture them when they appear. We used to have two problems. How long is it going to take to get there and what’s the best route? Up to 2006, we solved this by staring the brake lights ahead of us and unfolding a map on our lap. One solution path would have been to convene the Massachusetts Legislature and road construction companies that transit authority, television channel health, helicopter traffic reporting cruise. But there was another option, ignore the cars and just mapped the location and speed and travel off the phones sitting in people’s pockets, sitting in the cars, and overlay that on a road map of America and from that deduce traffic and the fastest way to get from A to B on every road in America in real-time.

Phone travel turned out to be a type of silver bullet. But do such opportunities exist in coffee? At Enveritas, we’ve used machine learning and satellite imaging to re-imagine how sustainability verification is conducted. The result is higher accuracy, lower cost. It’s free for farmers and could be conducted wherever coffee companies source. With over 80,000 coffee farm service completed in the past two years, it represents a fundamentally new wave to think about supply chain’s sustainability assurance. But the innovation doesn’t stop there. We can use the same technology innovation to help identify the location of rural schools in coffee-producing countries. What you’re looking at here is the latitude and longitude of 10,000 elementary schools mapped in Côte d’Ivoire. It’s a 10,000 institution address book, but how can this help us look at old problems in new ways? Well, what if we could plot school absence rate against the distance the children have to walk to school for all coffee households in an entire nation? What might such correlations provide us with?

Peter Giuliano: David has a graph up entitled “Does distance from school affect days absent from school?”. It’s pretty flat for most of the graph, suggesting a child’s distance from school doesn’t affect their absence rate so long as it’s within five miles. But after five miles, the absence rate shoots up.

David Browning: Perhaps new insights? What if we find an inflection point that when children live more than five miles from school absence rates go up dramatically. This would give us valuable information regarding where new schools could most optimally be built.

David Browning: Or we might discover there is no inflection point. But that would be an important insight as well. That building new schools is perhaps not the most pressing issue, not the best use of resources and instead, we should seek solutions elsewhere by measuring school class size or teacher training or the amount of textbooks. But data completed at scale offers new and exciting ways to look at systematic problems that drive forward at exploring innovative solutions.

18:50 It’s important to challenge coffee’s status quo because history will probably judge you harshly for working in an industry that causes suffering

David Browning: There are three things I would invite you to do. Be cynical, be uncomfortable, and be naïve. Be cynical of what you think you know. Question your assumptions. Be distrustful of your knowledge and your wisdom and your experience and what you’ve been told particularly in a social media-fueled world where currency is gained by the appeal of the message, not the accuracy. And second, be uncomfortable. Be dissatisfied with the status quo.

Peter Giuliano: David is showing a painting of a storm at sea with a ship in the background. In the foreground, seagulls swarm and a few hands stretch above the water, begging to be saved.

David Browning: This is a painting done by the celebrated British artist William Turner, and it depicts an actual event where 142 men, women, and children were thrown overboard alive to drown here in the foreground while the ship sails on, leaving them in its wake. Children were thrown overboard to drown because commercial rules made it more profitable to murder them than to take the risk that they might die on deck. It was more profitable to murder than to let starve. Insurance companies paid GB£30 per head.

Actions against the ship were brought to trial but the jury acquitted the ship. Everything was in order. Murder was in order. It was appropriate. It was business as usual. Turner chose to exhibit this painting for the first time coinciding with an anti-slavery conference that was taking place in London on where the young Queen Victoria’s new husband, Prince Albert was due to speak. He probably did this to urge Prince Albert to do more and Prince Albert did become an avid anti-slavery campaigner and eventually the world agreed that drowning children to improve quarterly earnings went from being business as usual to abhorrent to illegal and Prince Albert’s actions, we might assume, inspired Abraham Lincoln, who then went on to do more in this country. The original painting now hangs in the Museum of Fine Arts in Boston, about a ten-minute drive from here and I encourage you to go see it before you leave the city.

We can look back in horror at this spectacle, from the comfort of our armchair as we can look back in horror at other spectacles such as the lace industry in Dickens, England where young children were working 12-15 hours a day in spaces so small, three feet by three feet by three feet, that doctors of the day were concerned that the children might not have enough air to breathe. We could look in horror at the US Olympics gymnastics program, where some of their most exalted athletes were sexually assaulted year after year after year. But these things we can look at from a place of comfort, I ask you, what will the future say about us in the coffee industry and I’ll make a prediction? They’ll look back and say, you didn’t do enough. In an industry where one in ten coffee producing families will lose a child to poverty, you didn’t push hard enough, you didn’t ask enough questions, you didn’t get emotionally evolved enough. You didn’t seek for new solutions enough because it was efficient and it was profitable and business is efficient in allocating resources but it’s indifferent to human suffering, and it’s blind to morality. For that, you need people, people like you. People to say this is not right and this will not stand.

Be naïve about what is possible because naivety is a necessary precondition for optimism, an innovation to spring to life. It is the alchemy to break out of the paradigms that bind us. Ask yourself, What can I do? Am I doing enough, contributing enough to the industry that is providing me my livelihood, paying my mortgage, my holidays, my flat-screen TV? If you want to understand what is actually the state of your supply chain, what are the issues and take creative new steps, come and talk to us. If you want to live the values that are posted on your company’s website and have the courage to be transparent and the optimism to work for a future that is different to today, then come and talk to us. If you believe you could do more because the environment and the world smallholder farmers are waiting for you to act.

Thank you.

23:45 Outro

Peter Giuliano: That was David Browning at Re:co Symposium this past April.

Remember to check out our show notes to find a link to the YouTube video of this talk, a full episode transcript, and a link to speaker bios on the Re:co website.

Re:co Symposium and the Specialty Coffee Expo are coming to Portland in April 2020. Don’t miss the forthcoming early-bird ticket release – find us on social media or sign up for our monthly newsletter to keep up-to-date with all our announcements.

This has been an episode of the Re:co Podcast, brought to you by the members of the Specialty Coffee Association, and supported by Toddy.